Today the pinnacle of job success is to exit the corporate workforce and become an entrepreneur. Many factors have contributed to this movement, including a nearly 8-year expansion combined with stagnant wages. Regardless, the allure of creating your own lifestyle and income online is talked about endlessly on social media and in the office coffee room.
Would-be entrepreneurs then face the daunting task of creating a sustaining business using any number of monetization methods in a confusing landscape of soothsayers. Buyers of established websites find a plethora of information, well-oiled sales machines and “advisors” for hire, but get little help from true mentors who have “been there, done that.”
Most truly successful entrepreneurs are content to focus on their businesses, except when they offer the occasional and truly invaluable podcast interview.
But for those aspiring entrepreneurs who act and succeed–less than 10% of those who try– life is sweeter. Breaking the corporate shackles or just earning enough additional money to be comfortable are powerfully pleasing. I know many such folks who gladly work more hours for themselves to control their destiny and build their own assets than they would at a corporate employer.
But even when they succeed, they can always do better. Usually they fail at truly building a business.
The sad part of this journey is that most self-employed entrepreneurs –aka “solopreneurs” — are poorly equipped to take their business to the next level.
Simply put, they know how to make sales but don’t know how to build a business. These entrepreneurs have solved the 3 greatest obstacles in building an online physical products business:
- They adroitly selected a niche.
- They identified and cultivated profitable and quality suppliers.
- They crafted a strategy to drive profitable traffic to their site.
But they have a huge problem they have not solved for.
Mostly, they do it all–or at least the clear majority of it–by themselves. They are perfectionists who have little opportunity to scale their efforts. Maybe they have a VA or two that help, but even the VA’s time isn’t optimized.
Doing all the work yourself is a trait I love in my dentist or brain surgeon, but neither of them will ever give up trading their time for money and run businesses. Their earnings stop when they go home at the end of the day. It’s the same with the successful solopreneur.
Not a New Phenomenon
There’s an old story of how Henry Ford responded to the criticisms of business journalists that comes to mind. Ford was often thought to be aloof and even lucky, as he had failed in business before creating the assembly line. When challenged by critics, he invited several to his office to answer their toughest questions about the intricacies of his business.
After Ford diligently wrote down these questions he simply picked up the phone and called the relevant executives who could explain the answers in excruciating detail. Did this silence his critics?
He punctuated his point by telling his critics that he focused on strategy and not details. He had no need to be the smartest master of every detail if he could summon the experts when needed. Case closed.
Unfortunately, successful solopreneurs often fall prey to perfectionism. They have to be involved in every detail, just like most highly paid self-employed professionals.
What’s the Big Deal?
What suffers in this paradigm cannot be understated. Successful solopreneurs fail to maximize both the potential of their current business earnings and their potential exit sale value.
First, they are too deep in the weeds to extract the most potential from their site.
Ford chalked up his success to hiring smart people and empowering them. He believed himself to be a visionary. Henry Ford knew he certainly couldn’t think strategically if he assembled the cars, did the accounting, and made the sales.
Ford focused as much time as he could on strategy, one reason most entrepreneurial enterprises are flatter and disdain hierarchy. Let the experts do their job and you do yours. Most corporate employees are more concerned about titles and reporting lines than delivering results.
The second penalty is that smaller earning websites trade more cheaply than larger ones because a unit of time spent generates less income. Why pay the same multiple of monthly earnings for something generating $3000 of a monthly seller’s discretionary income (SDE) as you would for one generating $10,000?
This is especially true since these sites are sold to folks who have jobs and money, but not a lot of time.
The pool of buyers for quality smaller sites is tiny. Institutional money isn’t even interested until revenues are 8 figures. Smaller groups pool money for quality sites at smaller amounts of revenue, but sites earning below $10,000 in monthly SDE are still usually only attractive to individual investors. These investors all have more money than time.
So, when a hands-on solopreneur has a site with few processes and systems (and maximum personal involvement), the potential sale multiple really takes a hit.
Exactly how much they would leave on the table if processes and systems are in place is anybody’s guess. There are lots of variables.
From my own observations and discussions with website brokers my guess is it’s likely they could sell for 3-20X more monthly SDE if their website became a real business. This would come from both increased earnings and decreased time needed by a new buyer that results in a higher multiple of SDE.
The specifics of the business determine a lot in this regard, but higher earnings and real systems drive a lot of increase in value — as much as 50% in many cases.
My mantra is always “You’re just one deal away.” This could be from quitting your job, funding your kid’s education, or retiring a bit more comfortably. I understand the pressures of owning and operating physical goods ecommerce sites. I’ve agonized–and even lost sleep–over individual customer issues more times than I care to remember.
But if you can scale your business employing demonstrable best practices on a consistent basis by using your own expert team and tailored processes, you will sleep better. You’ll also enjoy life more.
You’ll free up time to be strategic, which will make you more money every month and increase your exit value should you ever decide to sell.
On the other hand, if you’re looking to buy an established website, this is fertile hunting ground. Look for a site that can benefit from your processes and systems. Look for a site that can be transformed into a business.
Once you run a business with some scale, you’ll know exactly what to look for. You’ll see opportunity in the frustrations of each solopreneur. You can actually see where you can add the most value before you even buy the site.
Seeing the ability to add value and then executing your plan is much more fun than going to the office every day. This I can tell you from my own personal experience.